Swap to save money

You may be paying over the odds on your mortgage without realising but there is a way round the problem - the increasingly popular route of remortgaging.

You could save yourself hundreds of pounds a year by switching to a lower fixed rate or discount deal, either with your existing lender or a new one. But do your sums to make sure it is worthwhile. All the savings and fees have to be weighed up.

You may be making inflated repayments on your mortgage if you are still paying it off at your lender's standard variable rate, which mortgage companies use to subsidise cheap fixed-rate and discount deals for other borrowers.

The same applies if you took out a five-year fixed-rate loan three or four years ago when rates were in the region of 8%, or if you have come out of a fixed-rate and been forced into your lenders standard rate for a couple of years under threat of a large penalty. The time to escape is the day you are free of the penalty period - it is only worth paying the fine in extreme circumstances.

But look before you leap. Remortgaging snags include legal expenses, valuations and application fees, which could add anywhere between £400 and £1,000 to the cost of remortgaging. Other pitfalls to look out for are compulsory insurance and overhangs, where you are locked into a lender well after the cheap deal has expired.

Cheltenham & Gloucester's Peter Mounty says: "There's no point going across too early for a quarter of a per cent rate difference if you are going to be hit with a big penalty. Do your sums."

Even so, remortgaging is becoming more and more popular. More than one in five loans taken out in January was a remortgage, according to the Council of Mortgage Lenders. Standard Life Bank grabbed 17% of the mortgage market last year, largely by offering a remortgaging service.

As well as enabling people to get cheaper deals, it can free up capital for pensions, home improvements, deposits on buy-to-let properties or settling debts.

So how do you go about it? First check you are not going to be subject to a penalty. The next stage is to decide if you want to stay with your existing company. An independent adviser can help.

Mr Mounty of C&G says the real key is to quiz your new lender to find out what contributions they will make to the process. The best of the deals offer free valuations and/or basic legal work or cashbacks to offset the costs.

Once you have done some information gathering you can go back to your existing lender with a strong hand.

Lenders do not always make remortgaging easy for their own customers. Many refuse to offer the best deals to customers who want to remortgage rather than move house, saying the latter have more expenses. Only when customers threaten to take their business elsewhere do some relent and reveal their best "under the counter" deals.

Mortgage advisers can help to push through the change more quickly. John Charcol has a high-speed remortgaging service that allows you to switch within 24 hours over the internet, or three days over the phone or in person. Some lenders such as the Woolwich offer a similar service and say agreement can be reached in two hours.

As to what mortgage to chose, two-year fixed rates with no redemption penalties are now a popular option with interest rates predicted to rise further before falling again over the next two years. These offer a painless exit in case rates fall further than expected.